CRESCENT CITY, Calif. — Dutton Dock, a rickety, disused pier at the foot of B Street, was a civic carbuncle--"rotted and unsafe even for pedestrian traffic in many areas," a consultant concluded.

Not only was the 37-year-old dock blocking construction of a new sport-fishing pier intended to reverse the city's sagging fortunes, it was a fire hazard that vandals had twice set ablaze earlier this year.

So when state and federal regulators refused to allow immediate demolition--requiring instead the usual months-long permit process--the City Council voted unanimously to tell the local volunteer Fire Department to ignore any new fires on the pier.

The next night, July 7, Dutton Dock went up in flames.

Feeding the Flames

It might have been written off as a fortuitous coincidence, except for one thing: When a local reporter arrived to cover the inferno, he noticed three men pouring a flammable liquid on the fire. The men feeding the flames, he learned, were volunteer firefighters.

Reporter Martin Kelly's article in the next day's Eureka Times-Standard chronicled the work of the fire-setting firefighters. It also sparked a wide-ranging criminal investigation--and, allegedly, an attempted cover-up--that has shaken this scenic little fishing town and its 3,000 residents.

It is a story that more than a few people here compare with recent Washington scandals--a story of zealous men who skirted the law and of deception at the highest level of government, a tale of an uncompromising prosecutor and an intrepid reporter. Incriminating tape recordings have even played a role.

It also is a story that some local residents dismiss as nothing more than small-town politicking, with relatively innocuous events blown out of scale by conflicting personalities and clashing egos.

The Del Norte County Grand Jury in August poured its own kind of fuel on the controversy by indicting Mayor C. Ray Smith, Fire Chief Don Olson and the seaside city's only plainclothes police detective, Virginia Anthony. The felony charges range from obstruction of justice to, in Olson's case, actually participating in starting the fire.

The day after the indictments, three firefighters who already had admitted setting the fire were sentenced to 30 days' house arrest and three years' probation.

"All this came to light during the Iran- contra hearings, and here we had the very same kind of thing--people, elected leaders, taking the law into their own hands. It is incredible," said Crescent City resident Karen Brohmer.

"A lot of people come here to get away from bureaucracy and regulations. We even have a local saying, 'There is no law north of the Klamath (River).' I guess it must be true."

'We All Have to Obey Laws'

But not if Dist. Atty. Doug Nareau has anything to say about it.

"We all have to obey the laws," he said flatly.

"A lot of these people were popular people-- are popular people," said Nareau, a former assistant district attorney who took office in January after running unopposed for the top prosecutor's job. "What bothers most people is the cover-up. Nobody really cares about the pier--that's 'So what?' But nobody likes government cover-ups.

"I think people feel that if they got caught, they should have taken their medicine and it would have all been over by now."

Kelly, the reporter who broke the story, believes that speedy admissions of error might even have meant that no one would have had to take any medicine at all.

"If our noble mayor and fire chief had acknowledged everything the next day, it would have been two stories--the pier burned down and some firemen goofed," he said. "But they tried to cover it up and that was their big mistake."

Rick McClendon, a Crescent City lawyer representing Anthony, is among those who think there was no mistake, at least not by those who have been charged.

"You've heard that story about using a sledgehammer to kill a fly?" he said. "Well, this is a case of burning trash without a license--something usually handled with a $15 fine--resulting in felony indictments. It never should have happened."

The story began on July 6, when the City Council met at its regular weekly session to discuss decisions by the California Coastal Commission, the Regional Water Quality Control Board and Army Corps of Engineers not to grant emergency permits for the city to destroy Dutton Dock by fire.

Pollution experts were worried about water contamination from the pier's creosote wood preservative; engineers feared that debris falling into the harbor could endanger fishing boats. These matters, they decided, required more study under the normal permit process.

Big Insurance Bill

This upset the City Council, records show, in part because the dock was frequented by transients and vandals--thus costing the financially strapped city $85,000 a year in liability insurance.